Gold is at a “sweet spot” at a moment; pullbacks should be aggressively bought. It just needs a trigger to launch it for the most spectacular rally since the late 70’s. I believe that trigger is likely to be the crash (or decline) of the stock markets.

This crash, if it occurs, is in anticipation of the inevitable bursting of the debt bubble. This is much like during the Great Depression when the stock markets crashed and bottomed before Total Debt as a % of GDP peaked in 1933. The Sovereign Debt-Crisis (especially in Europe) is the obvious sign that the debt bubble is bursting; with every additional unit of debt producing less or no increased GDP.

We do not have to only look that far, for an example of what is likely to come. Below, is a graphic that compares gold and the Dow, from June 2008 to May 2009.

The reason that I took these dates is because the period is similar (based on fractal analysis) to the current period. Gold bottomed in October 2008, more than four months before the Dow made a bottom. From the time of gold’s bottom, gold and Dow moved together at first, where after gold continued its rally, while the Dow was falling. It was also during this period that the gold stocks started a rally. However, this time, conditions are even better for gold stocks (more in the Gold Stocks Update).

Gold Long-Term

Currently, it is macro factors that are driving gold; therefore, once it starts moving up, it will often not make sense when compared to what other assets like stocks are doing. This is what greed and fear do: they make people to act irrationally. Fear and greed will push gold and silver higher at a phenomenal rate, despite major economic decline.

We, therefore, have to keep a close eye on the long-term charts, since the evidence for a massive rise should be there (note that I have done extensive analysis of gold and silver’s long-term charts).

Update on the previous Gold Alert

The fractals identified in the previous alert appear to be playing out as predicted. Below, is an updated version of the chart from that alert:

The two patterns are indicated by points 1 to 10, to show how they are similar. Point 10 appears to be in now. The next important barrier is the downtrend line. Note that a short-term reaction, before piercing the line is possible.

Furthermore, should price pierce the line and rally, I would expect some kind of retest of the breakout area. Please note that these are just short-term movements, and it is anybody’s guess what will really happen. We have to focus on the big move, which is a significantly higher price over the coming months.

Gold/Silver Ratio

Below is a chart of the gold/silver ratio:

I have drawn a support line that was violated recently. This is a good signal for silver and gold price. We could see a quick move to 45, however, we are likely to see a retest of that 54 area, before that.

This could also mean that we could have a risk-aversion episode when we retest the breakdown level, with gold and the Dollar rallying. A retest will be a good opportunity to load up on silver, since price is likely to pullback.

At some point – after retesting the breakdown area (if it does) – this ratio is likely to fall very fast. That might be the point when silver and gold really start to take-off.

For more of this kind of analysis on silver and gold, you are welcome to subscribe to my free silver and gold newsletter or premium service. I have also recently completed a fractal analysis report for gold and silver .

The image can be found at my new site: picturegoldandsilver – analysis of gold and silver by using a single image/picture.

For more detailed gold and silver analysis subscribe to my premium service. I have also recently completed a detailed fractal analysis report for gold and silver. You can also subscribe to my free newsletter on the sidebar.

“We are at the edge of a major economic crisis. Our monetary system is the underlying cause of this major crisis. The massive debt bubble created by our monetary system is about to burst. The demonetization of gold and silver, has over the years diverted value from these metals, to all paper assets (such as bonds) linked to the debt-based monetary system.

The process of the devaluation of gold and silver, started by the demonetization of gold and silver, is about to reverse at a greater speed than ever before. This is similar to what happened during the late 70s, when the gold and silver price increased significantly. However, what happened in the 70’s was just a prelude to this coming rally. The 70’s was the end of a cycle, this is likely the end of a major cycle; an end of an era of the debt-based monetary system (dishonest money).”

What this debt-based monetary system has done, is to create what I call a “mirror-effect”, whereby, silver (and gold) is pushed down in value, to a similar extent as to which paper assets such as general stocks are pushed up in value. This mirror-effect clearly shows up on the long-term charts of gold, silver and the Dow.

Here (in part 2), I would like to show how this “mirror effect” of silver versus the assets linked to the debt-based monetary system (general stocks in this case), shows up on the long-term charts. This “mirror effect”, also reveals an interesting cycle, which provides more evidence to support my view, of the impending judgment of this system (monetary system), in terms of standards according to the Holy Scripture.

I have drawn a vertical red line, approximately where silver was demonetized (1870s). Notice how the real price of silver collapsed after the red line, from about $30, until it bottomed in 1931 at $4.29. It then traded side-ways (from the big-picture view) for many years, until it spiked from about the early 1970s, making a peak in 1980, where after, it bottomed again in 2001.

Technically, the bottom in 2001 was the completion of what would be a remarkable double bottom reversal, with the first bottom being in 1931. After a double bottom formation, there is often a big rally, and that is exactly what happened next. If this pattern continues to follow the pattern of a valid double bottom, it will reach levels that will exceed the 1980 high by at least one multiple, but probably by many more.

However, the purpose of this article is not to deal with targets. The interesting thing about this possible double bottom is the fact that the two bottoms came 70 years apart. This 70 years period also appears on the long-term Dow chart. Below is a Dow chart (from stockcharts.com) from 1900 to present:

On the chart, I have indicated a 70 year period from when the Dow peaked in 1929, to the peak in 1999. The reason for using the 1999 peak instead of the 2007 peak, is the fact that the 1999 peak represents the real peak, since the Dow/Gold peaked in 1999 (like it did in 1929).

Notice the dates of the peaks and how they fit in with that of the bottoms of the real silver price, as well as the similar 70 year periods between. In my opinion, the occurrence of the 70 year period on both charts, in the context as explained above, provides additional evidence of the link between silver’s demonetization (or suppression) and the massive debt bubble of this century – as explained in part 1 of this article.

While the Dow is inflated to the peak in 1929, silver is suppressed to its low in 1931. And again, the Dow is inflated to its peak in 1999, while silver is suppressed to its bottom in 2001.

So, the peaks and troughs, as presented in the above charts, are the manifestation (in visual form) of the debt-based monetary system causing paper and related assets to rise, while suppressing silver. Another way of looking at it is that the debt-based monetary system is fuelling speculation in paper assets by using energy diverted from precious metals. THIS IS THE REAL MANIPULATION OF GOLD AND SILVER – it is in the open.

Silver (like gold) stands in direct opposition to the current monetary system (they are inescapably linked). The fall (and falling) of this system is the rise of silver as money; therefore, massive increases in what silver can buy in real terms.

Update on the silver pattern presented in my previous article

In my previous article on silver, I presented the following graphic that compares the silver chart from 2007 to today, to the gold chart from 2008 to 2010 (all charts generated at fxstreet.com):

It seems that silver has now made that low at point 12 (note, there is still a possibility of a retest). Price is now looking to break out of the down-trend since September (point 7). If silver continues to follow gold’s pattern above, we could see new all-time highs over the coming months.

For more of this kind of analysis on silver and gold, you are welcome to subscribe to my free silver and gold newsletter or premium service. I have also recently completed a fractal analysis report for gold and silver – more detail on my website.

It is well established that there is a high correlation between how the price of gold and silver trades. Thanks to this relationship between gold and silver, one is able to use historical trading data of the one good, in order to project what may happen to the price of the other.

Awhile back, I wrote about this in my newsletter:

“Do not listen to those who call silver a bubble! It is very likely that, believing them, you will miss out on the greatest silver rally in recent times. Now, I cannot tell you for sure that silver or gold is going to rally from here – nobody can. What I do tell you is that all the signs that I look at are indicating that silver and gold will rally significantly from around this area.

Silver compared to gold

Let’s compare silver’s attack of its 1980 all-time high to that of gold. I believe this to be a justified comparison due to the fact that silver and gold’s prices have such a high correlation; but despite that they have a high correlation, they sometimes reach similar milestones at different times. Let me explain by way of the following chart:

Chart generated at commoditycharts.com

The green is silver and the black is gold. I have marked a similar peak for silver and gold as 1 and another as 2. Notice how at one time gold and silver pass their similar peaks at the same time, and at another time they pass it separately. But even on the occasion that they passed their peaks at different times, the manner in which the peaks were passed were still very similar.

I have also indicated where gold bottomed but silver did not. Silver instead bottomed at about 1993. Again, despite the fact that silver and gold bottomed at different times, their manner or pattern of bottoming was still very similar.

So, there is not just a similarity in how gold and silver trade at the same time period, but also how they trade at similar milestones, despite the fact that those milestones are sometimes reached at different times. This can cause silver or gold to be the leading indicator, depending on the particular milestone. In this case (milestone of reaching the 1980 peak), gold is undoubtedly the leading indicator, so it could help us to project what silver might do around this milestone.

I have previously made my view clear regarding where I think silver is in this bull market. I have noted that silver has formed a cup — in a similar manner as gold did — when it reached the $50 mark. I consider the pullback to the $32 area (about 1/3 retracement of depth of cup) as normal; therefore, I consider the probability of silver going lower than the $32 level as highly unlikely.

Let us see if gold’s behaviour, when reaching its (relative) 1980 high in 2007, can help us to predict what silver will do going forward.

In the chart above, you can see that gold made a triangle-type pattern just before it reached the 1980 all-time high. When it came out of that triangle pattern, it rallied strongly to the 1980 high, which started the formation of a flag-type pattern. From the flag pattern, price shot upward to the $1000 level. It is also worthy to note that point 4 of that flag pattern represents about the halfway point from point 3 to the eventual top ($1000).

Above, you can see that silver also made a big triangle-type pattern before it reached the 1980 peak. When it came out of the triangle, it rallied very strongly to the 1980 peak. At the peak it fell down to the $32 area. Is it currently forming a flag or similar pattern, just like gold did? I certainly believe so. I believe if price goes through the $42 level, it will confirm that silver is going to go back to $50 and soon blast through it, just like gold did through its 1980 peak. A fall below point 5, and all bets are off. However, I believe this possibility to be unlikely.

If we assume that silver does go through the $50 level, what target can we expect? If we use gold’s performance to establish a target for silver, it would appear that $80 would be a minimum. I think it will be much more.”

Currently, silver appears to be at the end of a flag-type pattern, just like gold’s at the end of 2007 (see above); so, it appears the correlation as explained above is still on track. Silver is about to take the lead in this precious metals bull market.

Below is a chart that compares the Rand gold price to the JSE miners (JSE Gold Index):

The blue(ish) chart is the Rand gold price and the black one is the JSE Gold Index. I have indicated similar “fractal” positions, which indicate that we are at a point in time where both charts should rise significantly. The other important point to note is the fact that the JSE Gold Index should catch-up with the Rand gold price over the next 18 months or so, just like it did from late 2001 to middle 2002.

The Rand gold price appears to be at, or very close to a major buy point. In a previous article, I highlighted a possible symmetrical triangle, which then, was an indication of much higher prices in the near and more distant future. This pattern is now setting up nicely, and performing all the technical confirmations that are normally associated with this pattern.

If you look on the chart above, you will see that price broke out of the triangle at about R 8500, and has now returned to test that breakout at R 8500. It is quite normal for price to test the breakout level (in this case R8500) or pullback to the apex of the triangle. What does this mean? It means that gold is either at an ideal buy point, or that the buy point is slightly lower (at the apex of the triangle).

For the target price of this pattern, see my previous article called: “South Africa Beware of the Coming Storm” (follow the link above).

Is this analysis consistent with the outlook for the South African rand and the US dollar gold price?

Below, is a 5 year chart of the US dollar/SA rand exchange rate.

(chart generated on fxstreet.com)

I have drawn a support line, and you will notice that price (dollar/gold exchange rate) is currently at support. This could possibly be an indication that price might bounce very soon. I have also indicated three points, marked with an A. These points are similar, from a fractal perspective. The first 2 points were key or pivot points, from where the price bounced materially. If I am correct, and the third point is similar to the first 2 points, then price should bounce from here.

It is important to note that the points are similar, not identical. Therefore, though there may be a bounce coming, it will not necessarily be identical to the previous two bounces.

A bounce in the price (depending on magnitude) might hold bad implications for the general stock market. Are we on the cusp of another round of risk-aversion?

The month of July has been quite an uncomfortable month in the gold market. The gold price has dropped a whopping $80 since 30 June. Despite this big drop, the formidable uptrend in the gold price is still well intact. Therefore, I believe there is no need to panic.

Before I look at where I think we are, in terms of the gold price, let me first look at some of the expectations I had:

“I am so confident of my gold and silver analysis that I offer to refund your money should gold not hit $ 1300 dollars by 31 July 2010 or Silver $21.50 also by 31 July 2010.”

As you know, this prediction failed, since gold only hit $1265 and silver $19.82. For more on why I think that my expectation failed, see below. Although I am disappointed, I think the failure to reach the expected target, as well as the recent drop in gold, provides more insight as to how fractals work as well as possibly confirming where we are in this gold bull market.

Where are we?

As I have said before (in my Fractal Report), the gold chart tends to form a particular shape, and then tends to repeat that particular shape (accurate to a reasonable degree) on a larger scale. This is exactly what the definition of fractals suggests when it mentions the term “self-similarity.” Keep this in mind, as this is part of the reason why I think we did not exactly have the price action that I expected.

The difference between a smaller and a bigger fractal is often that different parts of the shapes are accentuated, as well as the fact that the bigger fractal has more complexity. This, I assume, would be the same when trees or broccoli are formed. The ultimate shape of the tree or broccoli determines where matter is added (more or less of) and what type of matter is formed at various phases as it is growing.

Look at the two fractals below, and see if you can understand what I am talking about.

(all charts generated on fxstreet.com)

What you see on the chart above are two fractals indicated by 1. They are similar, but different parts are accentuated, as indicated by an example.

This creates the possibility that all parts within a fractal might not have the same relative size to the similar part in the other similar fractal. This can make it tricky to judge relative sizes between two patterns, as well as when a pattern is fully completed relative to the first formed pattern (remember this as well).

It is important to understand that the overall fractal (the bigger picture) determines what shape is accentuated or where more complexity is required. Therefore, the big picture or overall fractal is the basis to understand how the various fractals fit together and where the chart is likely to go.

All this, and more, creates a continuous similarity in various parts of the chart. This can create some confusion, though, when analysing the chart or fractal, and the confusion can be overcome only by looking constantly for confirmations, as well as by observing the context within which the different fractals exist. Again, the big picture should never be forgotten.

Why am I telling you all this? Hopefully you will know by following the charts and explanations below. All this is done to give you a sense of where I think the gold price will go next.

On the chart above, I have indicated how I think the two fractals are similar. Above, I explained (to a degree) how the chart is able to create a continuous similarity, and this you will understand when you look at the next chart, which indicates another way the two patterns could be similar. This possibility is in part created by the fact that various parts of a given pattern are not the same in relative size when two patterns of similar charts are compared.

On the chart above, this phenomenon is illustrated. You will see, for example, that the distance between points 2 and 3 on the two patterns is out of sync when compared to the scope and distance of points 1 to 2. This comes back to the fact that different parts have been accentuated (see first chart).

The two blue rectangles bring me to the bulk of the reason why the price action was not as expected. If you refer to my previous gold updates, you will see that I indicated that the low (24 March 2010, just after point 8 of the second pattern) was similar to point 10 of the first pattern. I based my opinion on the visual similarity, as well as on the relative size of the patterns (i.e. the relative time it takes to complete the patterns). Now that the price action was not exactly as expected, as well as the fact that the price action since 24 March to date (pattern in second blue triangle) is almost an exact repeat of the pattern in the first blue triangle, I have come to the conclusion that the patterns are now similar, as indicated by the points in the chart. Therefore, I think that point 10, on the second pattern, is in the process of being formed. The visual similarity, between the two patterns is still very much intact, and this actually illustrates the concept that I call fluid, or continuous, similarity.

So, what do I expect going forward? I expect gold to rally very soon, in a spectacular fashion, as it did from the middle of August 2007 to the beginning of November 2007. It needs to find the bottom, which could already be in, at or near $1157 (or perhaps slightly lower). From a timing point of view, we are either there or thereabouts.

It is risky to make bold predictions, given that the market is so volatile, and given that my previous prediction was off. However, I aim to call things as I see them, as well as share the basis for my views. The objective of these updates and articles is to share my view; therefore, I will continue to express my expectation in no uncertain terms as far as possible.

The chart below is just to illustrate another way of viewing the similarities of the two patterns and thus illustrate the concept of fluid similarity. There are even more ways to illustrate the similarities between the two patterns, but not all of them are herein discussed.

It is important to note that both the above chart, as well as the chart below, indicate that gold should rise sharply—and soon.

***

If you find this information useful, please forward it to friends or family so that I can continue to reach people who would not normally read such informative sites as this one.

In a previous article called “Gold, Dow And The South African Rand” (dated 24 May 2010), I stated: “we will probably have more of these scary drops in the gold price as we continue into this volatile phase of the gold bull market. The good news for gold bugs is that we will also have some huge up days, and the general trend will be very much up.” If you look at the gold chart, you will notice that despite the volatility in the gold price since then, the trend is definitely up. When these scary drops happen, many people start panicking and eventually get “shaken off” this great bull market.

It is important to keep the big picture in mind. When one only focuses on the day to day movements of the gold price, one will be one of those who will lose out. At this point, where gold is going parabolic, you could sell all, and a week later the gold price could be $150 higher (or even more). At this stage of the gold bull, a sharp drop in price is an ideal opportunity to add to long-term positions; it is not a time to panic and sell one’s core holdings. Believe me, while gold is going higher in this bull market, there will be many sharp (daily or weekly) drops.

What is the big picture for gold?

The chart above is a long-term gold chart (thanks to goldprice.org). This chart is the big picture for gold, as far as I am concerned. If you look at the chart, like I do, then it should tell you that the gold price is going to explode upwards very soon. It should also tell you why looking at the big picture is so important, and why focussing on gold’s day to day movement might cost you a fortune. For more information about this gold chart and its analysis, you can purchase my Long Term Gold Fractal Analysis Report (email me for details).

What is the short-term gold picture?

I have marked the two patterns that I feel are similar. I have marked the patterns by highlighting 5 points on each. If the second pattern resolves in a similar manner to the first, then the gold price should hit point 5 on the upper resistance (trend) line indicated on the chart. For these fractals (patterns) to really be similar, there should be a measurable relationship between the two patterns, measurable in terms of time as well as price movement. So, for the second pattern to resolve like the first and still be a valid fractal of the first, it has a certain amount of time to do it, and a certain price movement to cover.

I can tell you that time has been moving, whereas price has not been moving as fast as should be expected (based on the time movement). What does this mean? If these two patterns are actually fractals, then price has to catch up with time, and that should mean strong rallies (shorter time periods) could be coming up. As I am writing this, gold is up $20 the last couple of hours. It is going to be interesting.

Is the big picture in gold, as shown above, consistent with what is going on in the world economy today and with what is expected going forward? Consider the following:

Debt levels world-wide are at historically high levels

These debts are holding back the world’s economy, and will continue to do so for a significant number of years. (see here for more on this)

These debt levels are probably going to bring down the current world monetary system.

All fiat currencies are depreciating, as measured against gold, and this will increase as more countries struggle to meet their debt obligations

Tangible assets like gold and silver are under-valued as compared to intangible assets like equities and bonds. This is illustrated by the Dow/gold ratio. (see here for more on this)

When one takes into account the points above, then it is hard not to agree that the big picture in gold, illustrated above, is probably accurate.

If the world’s debt levels are at all-time high levels and are likely to hold back the world’s economy, then this should affect the economics of listed companies and the real values of companies listed on the great stock exchanges of the world.

This does not bode well for Dow and other listed stocks. They will very likely lose real value (as measured in terms of gold, silver and other commodities) over the next couple of years and beyond.

Nominal value (the value as listed on the exchanges in terms of fiat currency), is an altogether different matter. This matter is often referred to under the inflation vs. deflation debate. It makes things easier when one distinguishes between nominal and real values, when trying to understand this inflation/deflation debate, or where the stock markets are going over the next couple of years. One could still have higher nominal values for general stocks, notwithstanding bad economic conditions. Will we have higher or lower nominal values for general stocks over the next couple of years and beyond?

There are also some great signals that I like to use when forecasting where the stock market is likely to go in the future. One such signal or proxy is the value of the South African rand compared to other currencies. The South African rand has been a fairly reliable measure or proxy for risk aversion. When the general markets take a hit and everyone is running for safety, the Rand usually gets hit hard.

Below are two South African rand charts that I have been tracking. I have done some proprietary fractal analysis, which I would like to share with you.

The first is a 5 year US dollar/SA rand chart (generated on fxstreet.com). In a previous article, I have used this chart and more to show why I think the Dow has topped for now. On this chart, I have indicated two black lines as a possible trading range. I have also indicated two possible fractals. I have marked 4 points on each fractal pattern to indicate how they are similar. If the second pattern resolves like the first pattern, then price should break out of that top line of the trading range and make its way towards the 9 price level. This will likely mean that the Dow will visit the 9000 level. This appears to be consistent with fractal analysis I have done on the Dow.

The second is a 5 year Canadian dollar/SA rand (generated on fxstreet.com). Again, I have applied my proprietary fractal analysis to his chart. I really like this chart, since it clearly illustrates (in textbook fashion) how effective fractal analysis can be. This chart gives a clear signal when fractal analysis is applied. It is probably due to the fact that both South Africa and Canada are resource based economies (just a guess).

Again, I have indicated two possible fractals. I have marked 6 points on each fractal to indicate how they are similar. If the second pattern resolves like the first pattern, then price should break out of that top black line, and make its way towards the 8.5 price level. This will likely mean that the Dow will break down. The similarity of the sections indicated by the circles gives me added confidence that the second pattern will resolve like the first.

If you find this information useful, please forward it to friends or family so that I can continue to reach people that would not normally read informative sites such as this one. You can subscribe to my newsletter at http://hgmandassociates.com/. My newsletter is free and I send it out whenever I feel I have relevant information to share. I do gratefully accept donations, though, so that I can continue to research and write. Send me an email for details.

8 June 2010

Below, I have posted two charts of gold. The intention is to make sense of current price action, as well as to forecast what might be expected going forward.

First of all, I refer you to a previous article, where I argued how the current pattern in gold is similar to an earlier pattern on the gold chart. Please refer to that article, as this short article is a continuation of that previous one. Also refer to the previous email: Gold Action For The Last Week (dated 23 May 2010).

The first chart is from 2007.

I have indicated important days such as:

The beginning of a new cycle, interim tops, and the bottoms following the interim tops.

I have done the same for the chart (current) below.

all charts generated on fxstreet.com

If you refer to the previous article, mentioned above, you will notice that the beginning of the new cycle is highlighted as point 4 on the charts in that article. So, the beginning of the new cycle, as indicated on the above charts, is our starting point.

Thanks to fractals being self-similar, patterns tend to repeat themselves in a similar manner, with the exception of some features—for example, the time scale being different. If I am correct about where the beginning of the new cycle is indicated, on the above charts, then there should be a similarity in price action in both charts after the new cycle.

First interim top – You will see that the first top, on the first chart, occurred on day 6 of the new cycle. On the second chart, the first top occurred on day 13. The price action could be considered as similar, except that there is a difference in time scale (the current scale being about twice that of the first). Note that for purposes of this analysis, we are not interested in how the scale of price action compares.

Bottom after 1st top – This occurred on day 9 on the first chart, and on day 18 on the second chart. The difference in time scale continues to be about 2 (2.1 in my opinion) in magnitude (note the scale would be more accurate if we were using charts of shorter time periods).

Second interim top – This occurred on day 19 (end of 18) on the first chart, and on day 37 on the second chart. Again, it appears that the difference in time scale continues to be approximately 2.1 in magnitude.

Bottom after 2nd top – This occurred on day 20 on the first chart. On the second chart, you will notice that it was on day 42, as I previously predicted. It appears that the difference in time scale of approximately 2.1 in magnitude continues.

Third interim top – This occurred on day 26 on the first chart. If we apply the 2.1 magnitude to 26, then we get 54.6 days. Today is the 54th trading day since the beginning of this cycle, so if the correlation between these two pattern continues, we should see an interim top today, possibly tomorrow before the American market opens. I was hoping that this top should take us to $1280 to $1290. I am still hoping, but unless we have a spike today, it is becoming less likely.

Bottom after 3rd top – Should today or tomorrow be an interim top, gold should take a break, until it hits a bottom on day 58 or 59. I am not sure how big a correction we will have from the third top; however, I do not believe it should be very significant. It should be more like trading sideways to slightly down, but let’s see. My target for the fourth top is around $1330 (day 67 or 68).

If you find this information useful, please forward it to friends or family so that I can continue to reach people that would not normally read such informative sites as this one. If you would like to subscribe to my newsletter, please send me an email. My newsletter is free and I send it out whenever I feel I have relevant information to share. I do gratefully accept donations though, so that I can continue to research and write. See details above.

by Hubert Moolman

Originally published on 16 February 2009

During the 7 years of famine in Egypt, in the time of Joseph, one of the greatest transfers of wealth in the history of this world took place. The Pharaoh of Egypt obtained great wealth in the amount of land and people who became his servants. “And Joseph bought all the land of Egypt for Pharaoh: for the Egyptians sold every man his field, because the famine prevailed over them: so the land became Pharaoh’s” –Gen 47:20

Not only did he buy every man’s field but also every man as a servant. With what did he buy every man and his field? With bread – “buy us and our land for bread, and we and our land will be servants unto Pharaoh” –Gen 47:19

I believe that we have reached a time where the greatest wealth transfer in our lifetime as well as possibly in the history of this world is about to happen. Some people ask: “why the gloom and doom?” What they do not understand is the fact that this great transfer of wealth or collapse of the world’s monetary system (which they call gloom and doom) is inevitable due to past events.

Some of these people go on the say: “what about the poor people?” and they want to make you feel that you do not care when you are warning of the coming collapse. What they do not understand – in addition to the fact that these events (which they call gloom and doom) is inevitable due to past events and not because you want it – is the fact that they do not have to suffer this supposed gloom and doom.

Anyone who makes a point of seeking the truth, educating himself, obtaining knowledge about the issues that face us, will not suffer, and in many cases will actually benefit from such events. The ones that will suffer are those who refuse to educate themselves by seeking and obtaining the required knowledge. “My people are destroyed for lack of knowledge” – Hosea 4:6

There are so many people that are economically illiterate and they are not who many might think they are. They can be rich or poor, young or old, doctors or unschooled, financial advisors or whatever.

Many people want to hang on to a system (world monetary system) that really brings gloom and doom. They get worked up when someone warns of the flaws of the current monetary system and what gloom and doom it already brings as well as the worse to come as result of the flawed system. They will do and say whatever to protect the flawed system, whether they are major benefactors of the flawed system or not.

They continue to believe the lie, because it is “politically correct” or “socially acceptable” and they want to keep the so called peace – protecting evil in order to do good.

Many people still follow or believe their leaders despite all the problems they find themselves in which, in most cases, is directly as a result of the actions of those leader. They deny (don’t want see) the truth and rather seek familiarity.

The Pharaoh in the time of Joseph was definitely not like such. No, this man was very wise. He did seek truth, not familiarity. When Joseph explained to the Pharaoh what his dream meant, the Pharaoh believed him despite the fact that he did not even know him.

How was the Pharaoh able to distinguish truth from error? Simple – he looked at the track record of the man. Joseph has had success interpreting dreams and this was witnessed to Pharaoh – “and I have heard say of thee, that thou canst understand a dream to interpret it” Gen 41:15

Also, when Joseph explained the meaning of the dream, he also offered some advice as to what to do about it. Again, Pharaoh did not go back to familiarity, he did not follow his own advisors, but he again went to a man with a track record of truth and success with work. Remember Joseph was working for Potiphar, an officer of Pharaoh, and eventually became overseer over Pothiphar’s house due to his success.

Back to Today

We have a huge problem today in that debt levels worldwide are extremely high and even worse, it is incalculable. Now, it is imperative to understand that debt cannot be paid with debt. And when I say debt, I mean all debt: government, personal, corporate etc. Instead of reducing the debt it will just increase the amount of debt. Even when payment is made using money (non real paper money) one does not know to what extent the debt is discharged. This is because paper money is a promise to pay (various things from previously gold to future taxes, future production and even nothing) and one does not know to what extent those promises will be met, if at all. This is clearly understood when you understand that paper money is not an honest or consistent measure. You can read my article on “how do you measure wealth” for more on this.

So actually one is just adding to the debt by creating more paper money to pay debt. It might not be so apparent but the debt will still be somewhere in the system.

The debt incurred is the past events that will lead (and is already starting to do so) to the events that will translate into this great transfer of wealth. The coming world monetary system collapse is inevitable because the debt is heavy and it is real.

Debt can only be properly settled with real assets, this is inescapable. So if you borrow a car from someone, you are indebted to that person. You can settle that debt only by returning the car. The only real alternative to paying with that car is paying with what we call money (real money) which is itself a real asset. Like I explained in previous articles, real money is a capital claim on assets not a debt claim like paper money. To fully appreciate this one has to understand the function of money as well as what properties money should have. Various commentators as well as I have written about the function and properties of real money.

So it follows naturally that if debt is huge and it has to be paid by specific real asset or real money which is itself a real asset, real assets acceptable as full payment of debt would be in huge demand when debt is being paid off the proper way. However, I am not seeing the big debtors of this world paying their debt in specific real assets or real money. No, they are rather paying their debt with more debt (newly created money and other credit instruments). When they do this, the paper prices of real assets (more generally) eventually rise.

To keep things simple, it would be acceptable to say that paying debt with real assets is deflationary whereas paying debts with debt is inflationary. Now you can see why governments are so scared of deflation. They don’t want to pay debts the proper way.

I hope that it is now also clear why it is high inflation and hyperinflation that one should expect going forward. To expect the contrary is to bet that the US and others will actually start paying their debt with real assets like the kind that you have to dig deep into the bowels of the earth for.

However it is not to say that certain assets cannot deflate significantly going forward.

So, having specific real assets that are acceptable as full payment of debt is how you will prepare yourself for this coming great transfer of wealth. This is because they eventually win both ways. It is really as simple as that. The Pharaoh simply accumulated food because he knew a big famine was coming, and throughout that famine he was not only protected but he gained enormously. Nobody knew how big the famine was going to be and therefore how much food had to be stored. That is why Joseph collected as much food as possible.

Savings is what saved Egypt and what will save you and I. A previous article of mine called “The truth about our money” will give you more insights about the importance of a store of wealth and how it is relevant to protect us from the coming events.

Some real assets will be of course better than others. Food for example is the only thing that will get rid of hunger or water of thirst. It is important that you have the relevant goods or services when it is required. Since it is not possible to store everything that you might need in the future, it is essential that you have an ability to obtain the required goods and services when required, and this is why you have to have the best store of wealth. The best store of wealth is quite simply gold and silver and therefore they are a must have. And of course they are also assets that are acceptable as full payment of debt.

Which real assets to accumulate, when and how to accumulate them are the big questions. I have given you some tips with regard to this now. However, this is where your quest for truth becomes very important. You have got to educate yourself; you have to get the designation EL (economically literate) behind your name. By reading sites like these (you are probably reading from one of the great informative sites where my work is published), where many knowledgeable writers share their knowledge, you are already making a great start. I hope to cover the importance of knowledge-sharing in a future newsletter.

You have to be as wise as the Pharaoh. You have to distinguish truth from error. Do not be afraid to separate yourself from familiarity when it is flawed with lies or error. When choosing leaders or seeking advice, look at people’s track record. Where and how have they led people before? Do they have any success? Like I said Joseph had had success and therefore the Pharaoh trusted his advice.

I would like to close by quoting the President of America, Barack Obama:

“we say to you now that our spirit is stronger and cannot be broken; you cannot outlast us, and we will defeat you”

I would like to use his quote to send a warning to him and all world leaders out there, for if they are lying to us or plan to lie to us about money and the economy:

“we say to you now that the spirit of truth is stronger than you and any lie and cannot be broken; you and any lies cannot outlast the truth, and the truth will defeat you and any lie; therefore do not lie to us”

If you find this information useful, please forward it to friends or family so that I can continue to reach people that would not normally read such informative sites as this one. If you would like to subscribe to my newsletter please send me an email. My newsletter is free and I send it out whenever I have something to “say”. I do accept donations though, so that I can continue to research and write; email me for how.

Those of us in the older generation remember the 1970s. It was a wonderful time (for gold bugs). Gold went up. Almost all commodities went up. Bonds went down. Stocks went down. By 1980, most of the top mutual funds were gold funds. All of the establishment gurus lost their shirts. By 1981, they were believers in Dr. Doom. The (non-gold) mutual funds went to 12% cash.

If we wish to understand the 1970s (and subsequent American economic history), we must ask ourselves, what was the cause? Why did gold and oil advance so powerfully? Why did (consumer) prices go up faster than the money supply? Why did interest rates get into the mid-teens? (The prime rate in 1981 was reported as 20%; however, this was a false figure as the banks were trying to exaggerate. The actual high is best given by the T-bill rate, which hit 16% in May 1981.)

In the 1960s, Milton Friedman and his compatriot Anna Schwartz released a study which covered a century of American history. It showed that, when the money supply increased by 3%-4% per year (about equal to population growth at that time), the price level was stable. When the money supply increased by more than that, there followed, about 2 years later, a corresponding increase in prices. For example, if the money supply increased by 10%, then prices might increase by 6%-7%.

But in the 1970s, this theory, which had worked for a hundred years, went badly off. Toward the end of the decade, prices were rising at a double digit rate even though the money supply had never increased by more than 9% in a single year. In the 1980s and ‘90s, it was the reverse. Ronald Reagan came close to doubling the U.S. money supply during his Administration, but prices remained fairly tame. It seemed to be the best of all worlds, and Greenspan was called a miracle man by the media.

These strange events can be explained by the great commodity pendulum. If you look at nominal commodity prices from 1963-1971, you can see that they were flat. But this was the period when Keynesian economics became dominant in U.S. policy. The tax cut of 1963 was the start of this period, and through most of the 1960s the money supply grew by faster and faster rates. Thus the stability of commodity prices during this time meant that they were falling in real terms and were becoming unnaturally undervalued.

It should be noted that commodities show great long term stability of prices. One can research the price of wheat back into the early 19th century and find that in contractions wheat would hit a low of 50¢/bu. This low of 50¢ occurred again and again through the 19th century. And in the Great Depression the low established for wheat in the early 1930s was 50¢/bu.

But commodities are inelastic in price. For a commodity’s price to rise there (usually) has to be a reduction in supply. This means that commodity producers have to go out of business. And commodity producers tend to hang on for a long time before they throw in the towel. Commodity prices are thus sluggish and take a long time to respond to the forces of supply and demand. Therefore, as the ‘60s progressed, the Fed issued more money, consumer prices rose, but nominal commodity prices remained the same. As noted, commodity prices thus became undervalued in real terms. Wheat at $1.40 in 1971 was the equivalent of 35¢ in 1932 dollars, its lowest price in U.S. history thus far. With commodity prices so undervalued, when Richard Nixon abolished the slender tie which remained to the gold standard on Aug. 15, 1971, it was the signal for a massive rise in prices. Commodity prices exploded to the upside. Crude oil multiplied by a factor of 20; gold multiplied by a factor of 25. These were the commodities which attracted the most attention, but virtually all commodities participated and made sustained price advances in the period 1971-1980.

These advances in commodity prices fed through to consumer prices. So consumer prices advanced for two reasons. First, the Fed (no longer restrained by the Bretton Woods system) was increasing the money supply; second, commodity prices were catching up for their sluggish behavior in the ‘60s. They were exploding to the upside, and they were increasing the prices of all consumer goods for which they served as raw materials. This is why the consumer price index started outpacing money supply growth in the final years of the decade.

I call this period (1971-1980, BC on the chart) the first upswing of the commodity pendulum. The Kennedy tax cut of 1963 started commodities swinging back and forth like a giant pendulum: first undervalued (points B and D), then overvalued (point C), then undervalued again, etc. In the down periods (AB and CD), commodity prices are declining; consequently consumer prices are relatively tame. The Fed feels free to ease credit and print money. Bonds go up, and stocks follow them up. In the up periods (BC and DE), commodity prices are rising rapidly; this feeds through to consumer prices; the Fed finds that a little bit of monetary stimulation causes a substantial rise in prices. So the Fed tightens. Bonds go down, and stocks follow them down.

The bullish stock market years of the ‘80s and ‘90s were made possible by the fact that by 1980 (point C) commodities were overvalued. This caused an increase in supply and set commodity prices (both nominal and real) on a downward slope. This moderated consumer prices, and the Fed was free to ease credit and create money. This was the second downswing of the commodity pendulum.

By 1999 (point D), commodity prices were again undervalued. But this time it was much worse. Greenspan, by his repeated easings, forced commodity prices below their levels of 1971. Wheat at $2.50/bu in 1999 was 15¢/bu in 1932 dollars. Today at $4.80 it is 30¢/bu in 1932 dollars, well below its Great Depression lows and even below its 1971 lows.

In short people, these are the 1970s. The double bottom in the CRB index in 1999-2001 is equivalent to the 1971 bottom. The 2000 peak in the stock averages corresponds to the 1966 peak, and the coming peak in the DJI (in the next few months) is the early 1973 peak. Gold and oil are once again leading the pack, but before this move of the pendulum is over every commodity will have its day.

The first upswing of the commodity pendulum (BC) lasted 9 years. But the downswing which preceded this second upswing was much more extreme. So the second upswing will probably last, order of magnitude, 15-20 years. And speaking conservatively it can easily carry to CRB 1200. (This is the actual CRB, dating back to 1956 and being called the CCI by some people. It should not be confused with the RJ-CRB newly invented by the modern Commodity Research Bureau.)

Once you realize that gold is in a 15-20 year up move very similar to its move of the ‘70s, it becomes possible to calculate reasonable price objectives. We know that gold hit a peak in 1980 of $875/oz. (This is often stated in the literature today as $850/oz., but $850 was the high on Jan. 18. If you research the New York Times for Jan. 22, 1980, you will find an interday high of $875, Jan. contract, NYCX reported for Jan. 21.)

Consumer prices doubled from 1980 to 1999. It is conservative to project that they will double again on this second upswing of the commodity pendulum (as they did in the first). That will mean a 4-fold increase in real prices from 1980 to the end of this second upswing (point E). So for gold to hit $875 in 1980 dollars once again (as a peak price), it will have to reach $3500 in nominal terms.

Pretty this will be.

If you need a new manager for your money, then I suggest you subscribe to the One-handed Economist. (We don’t actually manage money. We simply give our best recommendations on what to do and leave the final decision to you.) You may visit our website, www.thegoldspeculator.com and pay via the Pay Pal button ($300/year), or you may send a check for $290 ($10 cash discount) to: The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055.

Howard S. Katz was one of the early gold bugs of the late ‘60s and ‘70s, turning bullish on gold in 1965. His favorite gold stock, Lake Shore Mines, went from $3/share to $39/share over the course of the seventies (sold at $31). Katz turned increasingly skeptical about gold as it mounted its final rise in 1979, and he called the top after the close on Jan. 21, 1980 (with gold at $825.50/oz.). Katz traded gold in and out during the ‘80s and ‘90s and once again turned long term bullish in Dec. 2002. His thoughts on commodities, stocks, bonds and real estate are available in a letter entitled The One-handed Economist and published every two weeks giving specific advice on trades in stocks and futures. This letter is available (both electronic and paper copy) for $300/year with a 3-month trial for $100. Send to: The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055. (Include both electronic and mailing address.)

1. First interest rates rise affecting the drivers of the US economy, housing, but before that auto production goes from bull to a bear markets.

2. This impacts many other industries and the jobs report. An economy is either rising at a rising rate or business activity is falling at an increasing rate. That is economic law 101. There is no such thing in any market as a Plateau of Prosperity or Cinderella – Goldilocks situations.

3. We have witnessed the Dow rise on economic news indicating deceleration of activity. This continues until major corporations announced poor earnings, making the Dow fall faster than it rose, moving it deeply into the red.

4. The formula economically is inherent in #2 which is lower economic activity equals lower profits.

5. Lower profits leads to lower Federal Tax revenues.

6. Lower Federal tax revenues in the face of increased Federal spending causes geometric, not arithmetic, rises in the US Federal Budget deficit. This is also true for cities & States as it is for the Federal government.

7. The increased US Federal Budget deficit in the face of a US Trade Deficit increases the US Current Account Deficit.

8. The US Current Account Balance is the speedometer of the money exiting the US into world markets (deficit).

9. It is this deficit that must be met by incoming investment in the US in any form. It could be anything from businesses, equities to Treasury instruments. We are already seeing a fall off in the situation of developing nations carrying the spending habits of industrial nations; a contradiction in terms.

10. If the investment by non US entities fails to meet the exiting dollars by all means, then the US must turn within to finance the shortfall.

11. Assuming the US turns inside to finance all maturities, interest rates will rise with the long term rates moving fastest regardless of prevailing business conditions.

12. This will further contract business activity and start a downward spiral of unparalleled dimension because the size of US debt already issued is of unparalleled dimension.

Therefore as you get to #12 you are automatically right back at #1. This is an economic downward spiral.

I heard all this “slow business” as negative to gold talk in the 70s. It was totally wrong then. It will be exactly the same now.